CSA Targets “Overly Promotional” ESG Disclosure

Authors: MLT Aikins ESG practice group

Weeks after Canada’s Competition Bureau launched an investigation into alleged greenwashing at Canada’s largest bank, the Canadian Securities Administrators (CSA) have released guidance aimed at cracking down on exaggerated sustainability claims.

On November 3, the CSA published a biennial report on its Continuous Disclosure (CD) Review Program, highlighting common disclosure deficiencies among public issuers – including a growing problem with “overly promotional” ESG disclosure.

“We have observed an increase in issuers making potentially misleading, unsubstantiated or otherwise incomplete claims about business operations or the sustainability of a product or service being offered, conveying a false impression commonly referred to as ‘greenwashing,’” the report read.

What Not to Do

In its report, the CSA highlighted a press release from a public company that claimed it would be carbon-neutral by the year 2023, without explaining how that milestone would be reached.

The company also claimed it had a “strategic relationship” with “high-quality partners attentive to environmental stewardship” and a key partner with “aggressive emissions reduction targets,” without offering any further details or support for those claims.

Further, the company described itself as a “global leader in environmental solutions,” despite generating only nominal revenue from its operations.

The company claimed it had relationships with various organizations dedicated to promoting sustainable communities, educational opportunities and employee engagement – all without identifying the organizations or describing what they actually do.

Finally, the company claimed it had a “high rating” on a national corporate governance survey but did not disclose its rating or the criteria used to determine the rating.

Avoiding Misleading Language

In its report, the CSA warned public companies about making ESG disclosures without providing any evidence to support their sustainability claims.

“When describing current and proposed ESG-related activities, issuers should avoid misleading promotional language,” the report read. “With increased access to data and information online, it is important to ensure that all public disclosures, whether voluntary or required, are factual and balanced.”

Companies that don’t back up their ESG claims are at increasing risk of enforcement activity – especially in Europe, where regulators are taking a firm stand against greenwashing. Earlier this year, German police raided the offices of Deutsche Bank and H&M was forced to backpedal on its sustainability claims.

Now that Canada’s largest bank is being investigated for alleged greenwashing – and with mandatory ESG reporting coming soon for banks and insurers – Canadian companies that aren’t taking ESG disclosure seriously could be at increasing risk of enforcement action and litigation.

In light of these developments, you need to make sure your ESG reporting is consistent and verifiable – or face the potential consequences. The lawyers in our ESG practice group have experience advising businesses in a variety of industries on their ESG strategies. Contact us to learn more.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.